Artificial intelligence (AI) investing has been a top theme in the market since 2023, and that trend looks set to persist for at least the next few years. The reality is that AI innovation hasn’t stopped, and there are still countless use cases that haven’t been optimized. All of this requires more AI computing equipment, and with the AI hyperscalers projected to spend over a trillion dollars next year on data centers, there are a handful of companies primed to benefit.
Among the best buys now for stocks that are in line to thrive are Nvidia (NVDA -0.91%), Broadcom (AVGO -1.13%), and Taiwan Semiconductor Manufacturing (TSM -0.83%). All three of these have huge growth expectations over the coming years and are also reasonably priced despite their potential to skyrocket.
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Nvidia and Broadcom just announced incredible guidance
Nvidia and Broadcom are competitors but have different offers. Nvidia has the best-in-class graphics processing units (GPUs), which are broad-purpose computing units that can handle just about any workload thrown at them. They have been dominant since the start of the AI arms race in 2023, and their industry dominance over that time frame has made their products synonymous with the industry.
Today’s Change
(-0.91%) $-2.06
Current Price
$223.42
Market Cap
Day’s Range
$223.21 – $225.93
52wk Range
$164.27 – $236.54
Volume
4.8M
Avg Vol
133.8M
Gross Margin
74.67%
Dividend Yield
0.13%
Because GPUs are designed to handle all sorts of workloads, some features go to waste when a GPU performs the same workload for its entire lifespan. To combat that, AI hyperscalers are partnering with Broadcom to design custom AI chips. These computing units may not handle the wide variety of workloads a GPU can, but they can perform better and cost less than a GPU for the applications they’re built for.
Today’s Change
(-1.13%) $-4.18
Current Price
$364.38
Market Cap
Day’s Range
$359.25 – $368.01
52wk Range
$289.96 – $495.00
Volume
465.9K
Avg Vol
24.3M
Gross Margin
66.54%
Dividend Yield
0.70%
The combination of these two computing units is the future of the industry, and both Nvidia and Broadcom are set to cash in, as is Taiwan Semiconductor.
Neither Nvidia nor Broadcom has the chip production facilities to fabricate the silicon wafers used in these chips. Instead, they outsource that work to chip foundries, primarily Taiwan Semiconductor. TSMC, as it’s also known, is by far the largest company in this space and has the production capacity to meet soaring AI demand. If Nvidia and Broadcom sell more chips, then TSMC is a direct beneficiary. Fortunately for it, these two project massive growth.
For next fiscal year, Nvidia expects to grow its revenue at a 70% pace. Broadcom’s AI semiconductor division projects to grow at a faster pace and believes it can double its AI revenue in 2027 and 2028. Furthermore, they note they’ve secured the chip supply chain to deliver on these projections, which is also a major piece of the puzzle.
Taiwan Semiconductor Manufacturing
Today’s Change
(-0.83%) $-3.64
Current Price
$435.36
Market Cap
Day’s Range
$431.87 – $439.40
52wk Range
$257.98 – $479.00
Volume
304.9K
Avg Vol
12.8M
Gross Margin
63.08%
Dividend Yield
0.80%
That’s two major chip providers forecasting great growth over the next few years, which also bodes well for Taiwan Semiconductor. However, none of this success has been priced into their stocks yet, which makes them excellent stocks to buy now.
The stocks all look like major bargains
Because each company is forecasting strong growth next year, I think using next year’s earnings projections to value the stock is a smart move. If we utilize next year’s earnings projections for each company, the stocks look like they’re primed to deliver solid returns.
NVDA PE Ratio (Forward 1y) data by YCharts.
If we set a final valuation mark of 30 times earnings for each of these companies, that would imply the stocks have 50% to 100% upside over the next year and a half. That’s an incredible projection over a short period, and few stocks promise the same level of upside.
As long as the AI build-out stays at full strength, like the companies that have more information than investors project, this trio makes for a great investment pick.